Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Sunday, March 26, 2017

US oil prices ended the week 81 cents lower than last week's final quote, but price quotes for Friday of this week really shouldn't be compared to those of last week, because each references a different contract month...i'll explain that oil pricing quirk again, because the change-over of the quoted contract month sometimes even throws me when i'm not watching for it, as it did this week...

at any give time, contracts to buy or sell oil for the coming month and for dozens of months in the future are being traded on the New York Mercantile Exchange (NYMEX), the Chicago Mercantile Exchange (CME), and several other exchanges; for instance, here's a list of contracts for US light oil currently being traded on the CME; you'll see they quote different prices for the same kind of oil, by month, all the way out to December 2025...however, the media and most industry publications will only quote the price of oil for the "front month" contract, or the open contract for the month closest to the current date that's still being traded...when trading in a given front month contract stops trading, several business days before the 1st of that month, the following month's contract becomes the front month contract, and its price is then quoted in the media as the price of oil, usually without much of an indication that the 'price of oil' being quoted is for delivery in a different month than the price that was quoted by the same source 24 hours earlier...at the same time, those sites that display oil price charts will switch the chart of oil prices for the month that expired with a chart of prices for the new front month, and the price history of the new current month shown by those new charts is usually slightly skewed from the prices that had been shown on that same graph over the prior month...

this week's natural gas prices, however, were still referencing the price for natural gas to be delivered in April, and will be until March 29th, as trading in natural gas contracts don't expire until 3 business days before the contract month...those prices were generally up this week, rising 4 out of 5 days, and ending at $3.076 per mmBTU, after closing the prior week at $2.948 per mmBTU...still, as we've noted before, prices at these levels are still low enough to discourage the exploitation industry from starting new drilling projects; leaving them just maintaining what they already have going, and only starting up new rigs when prices approach $4...a chart that came in one of the mailings from John Kemp at Reuters goes a long way towards explaining what has kept natural gas prices at these depressed levels over most of the last two years...

the above graph comes from one of the emailed package of graphs from John Kemp, senior energy analyst and columnist with Reuters (see my footnote below) and it shows the cumulative population-weighted heating degree days for the 2016-17 heating season in red, the same metric for the 2015-16 heating season in yellow, and historical average for the same metric as a white dashed graph...heating degree days are the sum of the average number of degrees below a certain temperature at which it has been determined that buildings need to be heated..,for example, if 65 °F is determined to be the temperature wherein one needs heating, a day with an average temperature of 45 °F would add 20 degree days to the total, while a day with an average temperature of 30 °F would add 35 degree days to the cumulative total...heating degree days are calculated for many areas of the US, and are used by utilities to estimate demand for their output, and are used locally to schedule deliveries of heat oil...this graph shows the result when one takes that heating degree days metric each for area of the US and weighs it based on the population of those areas...ie, if for instance, New York City with a population of 8 million has 25 heating degree days of demand on a given date, it will count for 1000 times more in the total than a county of 8,000 in Wyoming where the measure of their heating demand was 55 degree days on that date...therefore, what this graph shows us is the relative demand for heating for the whole country, from the period beginning in July of each year, a time when there's no demand for heating... so what we see here is that the US heating needs this season remain very close to those of the record warm 2016 heating season, when cumulative heating degree days were 17% below the average...that translates into 17% lower demand for natural gas heat, and 17% lower demand for heat oil...that reduced demand is the reason that natural gas prices have stayed below $3.00 per mmBTU for most of the last two years, and why drilling for natural gas dropped to an all time low last year, and has barely recovered, which you'll see in the next graph...

above, we have a graph of the rig count history from 1991 until last week (ie, this week's rig count is not yet included)...this graph comes from a weekly pdf booklet of petroleum graphs produced by Yardeni Research, a provider of investment and economics research, run by Dr Ed Yardeni, and it shows the oil rig count over that 26 year history in violet, the natural gas rig count over that span in green, and then shows the total rig count, which would also occasionally include a miscellaneous rig or two, in red...you can see that natural gas drilling hit its most recent peak in 2010-2011, when natural gas prices were consistently over $4 per mmBTU, while the drilling peak prior to that, in 2008, saw natural gas prices spike to near $14 per mmBTU....since 2011, however, there was only one period in 2014 that saw natural gas prices top $4 per mmBTU, and if you look close, you can see that natural gas drilling briefly picked up at that time...otherwise, natural gas drilling has been in a long term decline since that 2011 peak of 992 rigs, sliding all the way down to 81 rigs in both the first and last week of August 2016...while they've increased since then, note that they're still far below the 240 to 525 rig range that natural gas drillers were deploying even as far back as the early 90s..

The Latest Oil Stats from the EIA

the oil data for the week ending March 17th from the US Energy Information Administration showed a big jump in our imports of crude oil, resulting in another large surplus of crude for the 10th week out of the past 11, pushing our supplies of oil to yet another an all time high, even as our refineries ramped up production to a more seasonal pace...our imports of crude oil increased by an average of 902,000 barrels per day to an average of 8,307,000 barrels per day during the week, while at the same time our exports of crude oil fell by 167,000 barrels per day to an average of 550,000 barrels per day, which meant that our effective imports netted out to 7,757,000 barrels per day during the week, 1,069,000 barrels per day more than the prior week...at the same time, our crude oil production rose by 20,000 barrels per day to an average of 9,129,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,886,000 barrels per day during the cited week...

during the same week, refineries reportedly used 15,801,000 barrels of crude per day, 329,000 barrels per day more than they used during the prior week, while at the same time, 618,000 barrels of oil per day were being added to oil storage facilities in the US....thus, this week's EIA oil figures would seem to indicate that we used or stored 469,000 less barrels of oil per day than were supplied by our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom -469,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents "unaccounted for crude oil"...that "unaccounted for crude oil" is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil", which means they got that balance sheet number by backing into it, using the same arithmetic we just used in explaining it...

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports rose to an average of 7,863,000 barrels per day, still 3.0% below that of the same four-week period last year...at the same time, the 4 week average of our oil exports fell to 721,000 barrels per day, still 86.4% higher than the same 4 weeks a year earlier, as our overseas exports of our surplus light oil were barely underway in early 2016...the 608,000 barrel per day increase in our crude inventories included a 708,000 barrel per day increase in our commercially available crude supplies, which was partially offset by an 89,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 18 months ago...meanwhile, this week's 20,000 barrel per day oil production increase was all from the lower 48 states, as oil output from Alaska was unchanged from last week...the 9,109,000 barrels of crude per day that we produced during the week ending March 17th was the most we've produced since the week ending February 12th last year, and was more than 1.0% more than the 9,038,000 barrels per day produced during the week ending March 18th, 2016, while it was still 5.0% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US refineries were operating at 87.4% of their capacity in using those 15,801,000 barrels of crude per day, up from 85.1% of capacity the prior week, but still down from the year high of 93.6% of capacity in the first week of January, when they were processing 17,107,000 barrels of crude per day....their processing of crude oil is now on a par with the 15,820,000 barrels of crude that were being refined during the week ending March 18th, 2016, when refineries were operating at 88.4% of capacity....with the week's refinery pickup, gasoline production from our refineries rose by 231,000 barrels per day to 15,820,000 barrels per day during the week ending March 17th, which was 0.9% more than the 9,683,000 barrels per day of gasoline that were being produced during the week ending March 18th a year ago...in addition, refineries' production of distillate fuels (diesel fuel and heat oil) was also up, rising by 139,000 barrels per day to 4,829,000 barrels per day, which was also up by 1.8% from the 4,742,000 barrels per day of distillates that were being produced during the week ending March 18th last year...

even with the increase in our gasoline production, the EIA reported that our gasoline inventories shrunk by 2,811,000 barrels to 243,468,000 barrels as of March 17th, after they had dropped by more than 9.5 million barrels over the prior 2 weeks....that was despite the fact that our domestic consumption of gasoline fell by 54,000 barrels per day to 9,200,000 barrels per day and remains 3.0% off the year ago pace, and was because our imports of gasoline fell by 247,000 barrels per day to 325,000 barrels per day as our gasoline exports rose by 57,000 barrels per day to 592,000 barrels per day...while our gasoline supplies are now down by nearly 15.6 million barrels from the record high set 5 weeks ago, they're only down 0.7% from last year's March 18th high of 245,074,000 barrels, and are still 4.3% above the 233,386,000 barrels of gasoline we had stored on March 20th of 2015...

our supplies of distillate fuels also fell this week, decreasing by 1,190,000 barrels to 155,393,000 barrels by March 17th, even as the amount of distillates supplied to US markets, a proxy for our consumption, decreased by 397,000 barrels per day to 4,012,000 barrels per day, and as our imports of distillates rose by 48,000 barrels per day to 127,000 barrels per day, because our exports of distillates rose by 253,000 barrels per day to 1,217,000 barrels per day at the same time....while our distillate inventories are now 4.2% below the bloated distillate inventories of 162,260,000 barrels that we had stored on March 18th 2016, at the end of the warm El Nino winter of last year, they are still 23.5% higher than the distillate inventories of 125,849,000 barrels that we had stored on March 20th of 2015…

finally, with the big jump in our net oil imports considerably more than the increase in refinery demand, our commercial inventories of crude oil increased for the 10th time in 11 weeks, increasing by 4,954,000 barrels to a record high 533,110,000 barrels by March 17th...at the same time, 628,000 barrels of oil from our Strategic Petroleum Reserve was sold, which left inventories in the SPR at 693,383,000 barrels, a quantity not considered available for commercial use....thus for current commercial purposes, we finished the week ending March with 11.3% more crude oil in storage than the 479,012,000 barrels we had stored at the end of 2016, 6.3% more crude oil in storage than what was then a record 501,517,000 barrels of oil in storage on March 18th of 2016, 23.1% more crude than what was also then a record 433,217,000 barrels in storage on March 20th of 2015 and 52.0% more crude than the 350,802,000 barrels of oil we had in storage on March 21st of 2014...

This Week's Rig Count

US drilling activity increased for the 20th time in 21 weeks during the week ending March 24th, and we also had the 8th double digit rig increase in the past 10 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 20 rigs to 809 rigs in the week ending on this Friday, which was 345 more rigs than the 476 rigs that were deployed as of the March 25th report in 2016 and the most since Oct 2nd, 2015, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014 (see graph above)...

the count of rigs drilling for oil increased by 21 rigs to 652 rigs this week, which was up from the 372 oil directed rigs that were in use a year ago, and more that double the 316 rigs working on May 27th 2016, but still down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations fell by 2 rigs to 155 rigs this week, which was still up from the 92 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...in addition, another rig that was classified as miscellaneous was added this week, and we now have two of those, in contrast to a year ago, when there were no such miscellaneous rigs at work...

a drilling platform that had been working offshore from Louisiana in the Gulf of Mexico was shut down this week, which reduced the current Gulf of Mexico count to 18 rigs, down from the 27 rigs that were drilling in the Gulf during the same week of 2016...that was also down from a total of 28 rigs working offshore of the US a year ago, when there was also a rig working offshore from California, in addition to the 27 rigs that were drilling in the Gulf of Mexico at the time...in addition, one of the rigs that had been set up to drill through an inland lake in Louisiana was also shut down, leaving the inland waters rig count at 4, the same as it was a year ago..

active horizontal drilling rigs increased by 15 rigs to 673 rigs this week, which is well more than double the May 27th 2016 total of 314 working horizontal rigs...that's also up by 314 horizontal rigs from the 359 horizontal rigs that were in use in the US on March 25th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a total of 8 vertical rigs were added this week, bringing the vertical rig count up to 78 rigs, which was also up from the 53 vertical rigs that were deployed during the same week a year ago...meanwhile, the directional rig count was down by 3 rigs to 58 rigs, which was still up from the 52 directional rigs that were deployed during the same week last year....

as usual, the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of March 24th, the second column shows the change in the number of working rigs between last week's count (March 17th) and this week's (March 24th) count, the third column shows last week's March 17th active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 25th of March, 2016...

as you can see, the Permian basin of western Texas & southeastern New Mexico saw the largest drilling increase again, after a few weeks where not much changed in that basin...increases in the Eagle Ford of south Texas and the Barnett shale near Dallas also added to the Texas total, while the reasons for the 7 rig increase in Oklahoma aren't so clear, since the two rig increase in the Cana Wordford are the only shale basin targeting rigs added in the state...i'd assume that the other new Oklahoma rigs were of the vertical drilling sort...also note the addition of two rigs in the Marcellus, one in Pennsylvania, and one in West Virginia, which came despite the 2 rig reduction in the natural gas rig count...gas rigs that were removed were not from a major basin, but were rather from a markdown of rigs from "other" areas, the names of which are not included in Baker Hughes summary data..

as noted, a graph that i included above was from an emailed package of graphs from John Kemp, a senior energy analyst and columnist with Reuters, who advises that his mailing list is open to anyone...you can ask for his daily digest by emailing john.kemp@tr.com or you can follow him on twitter, @ https://twitter.com/JKempEnergy where he seems to post much of what he otherwise emails...

since oil pricing, and hence the industry's plans for drilling and fracking in the US, is still largely dependent on what OPEC does, we'll start this week by looking at the new OPEC Monthly Oil Market Report for March (covering February OPEC & global data)...this first table we'll include here is from page 60 of that OPEC pdf and it shows oil production in thousands of barrels per day for each of the OPEC members over the recent years, quarters and months as the column headings are labeled...for all their official production measurements, OPEC uses "secondary sources", such as analyst's reports from satellites and shipping data, as an impartial adjudicator as to whether their output quotas and production cuts are being met, to resolve any potential disputes that could arise if each member reported their own figures...this is also the oil production data we often see quoted in the media, other than that from independent analysis by energy research divisions of organizations such as Platts and Reuters, who will compute their own numbers..

here we can see that this official data shows that OPEC production was down by 139,500 barrels per day to under 32 million in February, from a January oil production total that was revised 42,000 barrels per day lower from what was reported last month...(for your reference, here are the official January figures before these revisions)...recall that OPEC committed to reducing their production by 1.2 million barrels per day from their October levels (shown here, with Indonesia), so these figures show the remaining 13 members are now pretty close to achieving what they agreed to...however, there are a number of different estimates out there, and depending on who's judging their output and their promises, their compliance with their pledged oil output cuts could be anywhere from 71.9% to 111.5%....however, it wasn't these official figures from OPEC that attracted the attention to this report this week, but rather the February production figures that the OPEC members reported to the OPEC Secretariat, which are shown in the next table...

the above table, also from page 60 of the OPEC pdf, shows the oil production in thousands of barrels per day that each of the members reported to OPEC (for those that did report)...although this data is considered suspect because of the many incentives OPEC members have to fudge their data, it attracted attention and precipitated a Tuesday selloff because the Saudis reported that they increased their production by 263,000 barrels per day, rather than cutting production by 68,100 barrels per day like the official totals show...while their 10,011,000 barrel per day output was still within their committed range, the increase put to rest the market consensus that the Saudis would cover for the other OPEC members such as the Emirates (UAE), who have not met their promised cuts...while oil prices rebounded after the Saudis explained the extra production was purely for domestic storage, over 10 million bpd was still more production from the Saudis than had been expected, and cast a pall of uncertainty over the market, whee traders had believed that OPEC had their production reductions under control..

next, we'll include a graph of the total OPEC oil output for all 13 members included in this report, so we can see how this month's production stacks up compared to historical figures...

the above graph, taken from the 'OPEC February Production" post at the Peak Oil Barrel blog, shows total oil production, in thousands of barrels per day, for the 13 members of OPEC, for the period from January 2005 to February 2017, using the official data from secondary sources...obviously, we can see that February OPEC production of 31,958,000 barrels per day is down quite a bit from their record production of 33,374,000 million barrels per day in November, achieved during their production run-up before the agreement was reached, but note that their current production is still somewhat more than what they were producing between February and May of 2016, and every other month before that, including last January, when they produced 31,628,000 barrels per day (a figure i arrived at by subtracting Indonesian production from the 14 member total they reported last year.pdf) ...similarly, we find that despite all of the brouhaha over the OPEC production cuts, their February 2017 production of 31,958,000 barrels per day is still 1.2% more oil than what the same 13 countries were producing in February 2016...

this next graphic we'll include shows us both OPEC and world oil production monthly on the same graph, from March 2015 to February 2017, and it comes from page 61 of the March OPEC Monthly Oil Market Report...the light blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for that shown on the right scale...global oil production fell to 95.88 million barrels per day in February, while it was still unchanged from a year earlier, and OPEC production of 31,958,000 barrels per day thus represented 33.3% of what was produced globally, a decrease from the 33.5% OPEC share in January and 34.0% in December...but even with the two months of production cuts we can obviously see here, there is still a surplus of oil supply globally, as the table we'll include next will show..

the table below comes from page 37 of the March OPEC Monthly Oil Market Report, and it shows oil demand in millions of barrels per day for 2016 in the first column, and OPEC's forecast for oil demand by region and globally over 2017 over the rest of the table...note that the forecast for global oil demand in the current first quarter of 2017 is shown on the "Total world" line of the second column, and projections are that during the first three months of this year, all oil consuming areas of the globe will use 95.34 million barrels of oil per day, up from the 95.05 millions of barrels of oil per day they used in 2016...but as OPEC showed us in the supply section of this report and the summary supply graph above, even with their production cuts, the world's oil producers were still producing 95.88 million barrels per day during February...that means that even after all the production cuts have taken place, there continued to be a surplus of more than half a million barrels per day in global oil production...

The Latest Oil Stats from the EIA

the oil data for the week ending March 10th from the US Energy Information Administration showed a large drop in our imports of crude oil, while refining of such crude was little changed, resulting in the first withdrawal of crude from US storage in 10 weeks...our imports of crude oil fell by an average of 745,000 barrels per day to an average of 7,405,000 barrels per day during the week, while at the same time our exports of crude oil fell by 180,000 barrels per day to an average of 717,000 barrels per day, which meant that our effective imports netted out to 6,688,000 barrels per day during the week, 565,000 barrels per day less than last week...at the same time, our crude oil production rose by 21,000 barrels per day to an average of 9,109,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 15,797,000 barrels per day during the week...

during the same week, refineries reportedly used 15,472,000 barrels of crude per day, 20,000 barrels per day less than during the prior week, while at the same time, 150,000 barrels of oil per day were being taken out of oil storage facilities in the US...thus, this week's EIA oil figures seem to indicate that we used 475,000 less barrels of oil per day than were supplied by our net oil imports, total oil well production, and what we took out of storage…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom -475,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents "unaccounted for crude oil"...that "unaccounted for crude oil" is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil.", which means they got that balance sheet number by backing into it, using the same arithmetic we just used in explaining it...

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports fell to an average of 7.6 million barrels per day, now 4.4% below that of the same four-week period last year...at the same time, the 4 week average of our oil exports fell to 887,000 barrels per day, still 127.3% higher than the same 4 weeks a year earlier, as our overseas exports of our surplus light oil were barely underway in early 2016...the 150,000 barrel per day draw out of our crude supplies included a 117,000 barrel per day sale from our Strategic Petroleum Reserve, the first of a planned sale of 5 million barrels annually that was planned during the Obama administration, 18 months ago...meanwhile, this week's 21,000 barrel per day oil production increase included a 20,000 barrel per day increase in oil production in the lower 48 states and a 1,000 barrel per day increase in output from Alaska...the 9,109,000 barrels of crude per day that we produced during the week ending March 10th was the most we've produced since the week ending February 12th last year, and was almost 0.5% more than the 9,068,000 barrels per day produced during the week ending March 11th, 2016, while it was still 5.2% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US refineries were operating at 85.1% of their capacity in using those 15,472,000 barrels of crude per day, down from 85.9% of capacity the prior week, and down from the year high of 93.6% of capacity in the first week of January, when they were processing 17,107,000 barrels of crude per day....their processing of crude oil is also down by 3.3% from the 15,996,000 barrels of crude that were being refined during the week ending March 11th, 2016, when refineries were operating at 89.0% of capacity....with the ongoing refinery slowdown, gasoline production from our refineries fell by 304,000 barrels per day to 9,540,000 barrels per day during the week ending March 10th, which was 4.7% less than the 10,015,000 barrels per day of gasoline that were being produced during the week ending March 11th a year ago...in addition, refineries' production of distillate fuels (diesel fuel and heat oil) was also down, falling by 83,000 barrels per day to 4,690,000 barrels per day, which was also down by 1.9% from the 4,781,000 barrels per day of distillates that were being produced during the week ending March 11th last year...

with the decrease in our gasoline production, the EIA reported that our gasoline inventories fell by 3,055,000 barrels to 246,279,000 barrels as of March 10th, after they had dropped by a near record 6,555,000 barrels the prior week....that happened as our domestic consumption of gasoline fell by 14,000 barrels per day to 9,254,000 barrels per day, our gasoline exports fell by 206,000 barrels per day to 535,000 barrels per day, and our imports of gasoline rose by 330,000 barrels per day from last week's 17 year low to 572,000 barrels per day...while our gasoline supplies are thus down by 12,784,000 barrels from the record high set 4 weeks ago, they're only down 1.4% from last year's March 11th high of 249,716,000 barrels, and are still 4.6% above the 235,400,000 barrels of gasoline we had stored on March 13th of 2015...

our supplies of distillate fuels also fell this week, decreasing by 4,229,000 barrels to 157,303,000 barrels by March 10th, as the amount of distillates supplied to US markets, a proxy for our consumption, increased by 418,000 barrels per day to 4,409,000 barrels per day, and as our imports of distillates fell by 187,000 barrels per day to 79,000 barrels per day, the lowest this heating season, while our exports of distillates fell by 366,000 barrels per day to 964,000 barrels per day....while our distillate inventories are now 2.5% below the bloated distillate inventories of 161,343,000 barrels that we had stored on March 11th 2016, at the end of the warm El Nino winter of last year, they are still 25.0% higher than the distillate inventories of 125,883,000 barrels of March 13th, 2015…

finally, with our net oil imports considerably lower than in recent weeks while refinery demand for oil was flat, our commercial inventories of crude oil were drawn down for the first time in 10 weeks, decreasing by 237,000 barrels to 528,156,000 barrels by March 10th...at the same time, 816,000 barrels of oil from our Strategic Petroleum Reserve was sold, with 550,000 barrels of going that to Petro China, which left inventories in the SPR at 694,009,000 barrels, a quantity not usually considered when aggregating our oil inventories...thus for current commercial purposes, we still ended the week with 10.3% more crude oil in storage than the 479,012,000 barrels we had at the end of 2016, 7.3% more crude oil in storage than what was then a record 492,160,000 barrels on March 11th of 2016, 24.3% more crude than what was also then a record 425,047,000 barrels in storage on March 13th of 2015 and 53.5% more crude than the 344,183,000 barrels of oil we had in storage on March 14th of 2014...

This Week's Rig Count

US drilling activity increased for the 19th time in 20 weeks during the week ending March 17th, as we also saw the 7th double digit rig increase in the past 9 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 21 rigs to 789 rigs in the week ending on this Friday, which was 313 more rigs than the 476 rigs that were deployed as of the March 18th report in 2016, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the count of rigs drilling for oil increased by 14 rigs to 631 rigs this week, which was up from the 387 oil directed rigs that were in use a year ago, and nearly double the 316 rigs working on May 27th, but still down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations rose by 6 rigs to 157 rigs this week, which was up from the 89 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...in addition, a single rig that was classified as miscellaneous was added this week, in contrast to a year ago, when there were no such miscellaneous rigs at work...

a drilling platform that had been working offshore from Texas in the Gulf of Mexico was shut down this week, which lowered the current Gulf of Mexico count to 19 rigs, still down from the 26 rigs that were drilling in the Gulf during the same week of 2016...that was also down from a total of 27 rigs working offshore of the US a year ago, when there was also a rig working offshore from California, in addition to the 26 rigs that were drilling in the Gulf of Mexico at the time...

active horizontal drilling rigs increased by 19 rigs to 658 rigs this week, which is well more than double the May 27th 2016 total of 314 working horizontal rigs...that's also up by 289 horizontal rigs from the 369 horizontal rigs that were in use in the US on March 18th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a net total of 2 vertical rigs were added this week, bringing the vertical rig count up to 70 rigs, which was also up from the 58 vertical rigs that were deployed during the same week a year ago...meanwhile, the directional rig count was unchanged at 61 rigs, which was also up from the 49 directional rigs that were deployed during the same week last year....

as usual, the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary pdf from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of March 17th, the second column shows the change in the number of working rigs between last week's count (March 10th) and this week's (March 17th) count, the third column shows last week's March 10th active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 18th of March, 2016...

noteworthy in this week’s report was the first drop in drilling in the Permian basin of western Texas since October 27th, although with 308 rigs, their active rig total is still more than double their year ago count...although Texas drillers did add 4 rigs this week, the state with the largest increase this week was Oklahoma with 10 rigs, with an increase of 3 rigs in the Arkoma Woodford, while the 3 new Mississippian rigs were also likely in that state, since Kansas shows no change in drilling activity...also note the increase of 5 rigs in North Dakota, possibly in anticipation of the completion of the Dakota Access pipeline, which by cutting shipping costs would increase the wellhead price for Williston basin drillers...and even with the increase of 6 rigs targeting natural gas, the rig count in Ohio's Utica shale still remained unchanged, as 3 natural gas rigs were added in the Arkoma Woodford, 2 were added in the Eagle Ford, and one each was added in the Marcellus and the Haynesville, while one was pulled out of an "other" unnamed basin...note that outside of the major producing states listed above, both New York and Illinois added a rig this week, while Montana had one rig shut down, and now has none, same as a year ago...for New York, that one new rig is the first drilling they've seen since two weeks in July of 2015, while Illinois now has two rigs running, in contrast to a year ago, when they also had none..

DUC report for February

this week also saw the release of the EIA's Drilling Productivity Report for February, which again showed another increase in uncompleted wells nationally, mostly as a result of dozens of newly drilled but uncompleted wells (DUCs) in the Permian basin...as you'll recall, we had expected that with oil prices above $50, some of the DUC well backlog would be completed, but this report again showed that completion of wells slowed even as the drilling rig count rose, as the total count of DUC wells in the US rose from 5,352 in January to 5,443 in February...a month ago, we speculated that slowdown might be the result of a shortage of competent fracking crews, and the oilfield worker shortage issue again got play this week in an article at oilprice.com this week, where they complain that even trucker jobs with an annual paycheck of $80,000 remain unfilled...frackers have now gone nearly two years with just skeleton fracking crews operating in much of the country, and many of those who had worked in the oil fields in the previous boom have since found work elsewhere, so putting together a fracking crew familiar with the latest techniques has become much harder than before..

like in previous months, most of the February DUC increases were oil wells; the Permian basin, which includes the Wolfcamp and several other shale plays in these stats, saw its total count of uncompleted wells rise by 95, from 1,669 in January to 1,764 in February, as we'd expect with the increase in drilling that we've seen in that basin...at the same time, DUCs in the Eagle Ford of south Texas rose by 13, to 1,265 in February, and DUCs in the Haynesville of Louisiana increased by 10 wells to 170...on the other hand, the Niobrara chalk of the Rockies front range saw a decrease in DUCs (which means more wells were being fracked than were being drilled) as the Niobrara DUC count fell from 700 in January to 678 in February...in addition; the Utica also showed a decrease of 5 uncompleted wells and thus had only 92 DUCs remaining at the end of February, and the Marcellus DUC count fell by 4 to 666 uncompleted wells....for the month, DUCS in the 4 oil basins tracked by in this report (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased by 90 wells, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) increased by 1 well, even though natural gas DUCs have generally declined since December 2013, as new natural gas drilling fell to record low levels and has barely recovered....

this graph shows the daily closing prices per barrel of oil over the past 3 months for the April contract for the US benchmark oil, West Texas Intermediate (WTI), as stored or to be delivered to the Cushing Oklahoma storage depot...after oil prices jumped 14% on the OPEC production cut deal in the last week of November, oil prices then stayed in a narrow range above $52 a barrel for the next three months, with the range becoming even narrower over the last 8 weeks...over that span, with oil prices over $50 a barrel for the first time since early 2015, drilling for oil in the US has increased by nearly 30%, from the 477 rigs that were drilling on December 2nd to the 617 rigs that were working this week...over the year before that, drilling for oil generally held steady or increased slowly after peridos when oil prices were in the $45 to $50 a barrel range, while oil drilling generally slowed after periods when oil price quotes were in the low $40s or below...so we believe that this price break to below $50 a barrel will give drillers and frackers reason to pause, and even should drilling continue to expand from here, it will do so at a much slower and more irregular pace than we've seen over the past 3 months..

The Latest Oil Stats from the EIA

this week's oil data for the week ending March 3rd from the US Energy Information Administration indicated that our imports of crude oil rose back to near this years average, while our refinery activity fell further below the seasonal norm, resulting in a large surplus of crude for the 9th week in a row, pushing our supplies of oil to yet another an all time high...our imports of crude oil rose by an average of 561,000 barrels per day to an average of 8,150,000 barrels per day during the week, while at the same time our exports of crude oil rose by 179,000 barrels per day to an average of 897,000 barrels per day, which meant that our effective imports netted out to 7,253,000 barrels per day for the week, 385,000 barrels per day more than last week...at the same time, our crude oil production rose by 56,000 barrels per day to an average of 9,088,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,341,000 barrels per day during the week...

meanwhile, refineries reportedly used 15,492,000 barrels of crude per day during the week, 172,000 barrels per day less than during the prior week, while at the same time, 1,137,000 barrels of oil per day were being added to oil storage facilities in the US...thus, this week's EIA oil figures seem to indicate that we used or stored 288,000 more barrels of oil per day than were accounted for by our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom +288,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents "unaccounted for crude oil"...that "unaccounted for crude oil" is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil.", which means they got that balance sheet number by backing into it, using the same arithmetic we just used in explaining it.....

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports anomalously fell to an average of 7.879 million barrels per day, now 1.7% below that of the same four-week period last year...meanwhile, the 4 week average of our oil exports rose to 964,000 barrels per day, which was 145.2% higher than the same 4 weeks a year earlier, as the discount on American light sweet crude has made it attractive to foreign buyers...meanwhile, this week's 56,000 barrel per day oil production increase included a 46,000 barrel per day increase in oil production in the lower 48 states and a 10,000 barrel per day increase in output from Alaska...the 9,088,000 barrels of crude per day that we produced during the week ending March 3rd was the highest since the week ending February 19th last year, just barely topping last March 4th's total of 9,078,000 barrels per day, while it was still 5.4% below the June 5th 2015 record oil production of 9,610,000 barrels per day...

US refineries were operating at 85.9% of their capacity in using those 15,492,000 barrels of crude per day, down from 86.0% of capacity the prior week, and down from the year high of 93.6% of capacity eight weeks earlier, when they were processing 17,107,000 barrels of crude per day....their processing of crude oil is also down by 2.6% from the 15,911,000 barrels of crude that were being refined during the week ending March 4th, 2016, when refineries were operating at 89.1% of capacity....but even with the refinery slowdown, gasoline production from our refineries rose by 388,000 barrels per day to 9,844,000 barrels per day during the week ending March 4th, which turns out to be 2.8% more than the 9,580,000 barrels per day of gasoline that were being produced during the week ending March 4th a year ago...moreover, refineries' production of distillate fuels (diesel fuel and heat oil) was also higher, rising by 18,000 barrels per day to 4,773,000 barrels per day, which was also a bit more than the 4,744,000 barrels per day of distillates that were being produced during the week ending March 4th last year...

however, even with the increase in our gasoline production, the EIA reported that our gasoline inventories fell by 6,555,000 barrels to 249,334,000 barrels as of March 3rd, for the largest drop in our gasoline supplies since April 2011....factors contributing to that big drop in our gasoline supplies were a 582,000 barrel per day increase to a near normal 9,268,000 barrels per day of domestic consumption of gasoline, and a 215,000 barrel per day drop in our gasoline imports to 242,000 barrels per day, which was the least gasoline we imported in any week since the first week of January 1999...for a historical comparison of this week's drop in gasoline supplies, we have a small graph below taken from a stack of graphs at Zero Hedge...

the above graph comes from a set of graphs in an article at Zero Hedge about this week's EIA report...it shows the weekly change in gasoline supplies over the last six and a half years, with increases in gasoline supplies indicated by a green bar above the zero line, and decreases in our gasoline supplies indicated by a red bar below the zero line, with the size of each bar indicating the magnitude of the change...Zero Hedge also includes a dark red dashed line from this week's drop back to the last time there was a drop of this magnitude, which was for the week ending April 8th, 20011, when our gasoline supplies dropped by exactly 7 million barrels in just one week...

now, this week's drop in gasoline supplies is hardly a crisis, because as you might recall just 3 weeks ago our gasoline supplies were at an all time high, beating the record set in the same week of 2016...notice the above graph also shows a series of green bars in early 2017, when our gasoline supplies were on the rise...thus, despite this week's big drop, out gasoline supplies are still up by nearly 28.4 million barrels since the first week of November, only down slightly from the March record high of 250,463,000 barrels of gasoline that we had stored on March 4th of last year, and are still 3.9% above the 239,873,000 barrels of gasoline we had stored on March 6th of 2015...

our supplies of distillate fuels also fell this week, decreasing by 2,676,000 barrels to 161,532,000 barrels by March 3rd, as the amount of distillates supplied to US markets, a proxy for our consumption, increased by 278,000 barrels per day to 4,091,000 barrels per day, and as our exports of distillates rose by 46,000 barrels per day to a 24 week high of 1,330,000 barrels per day....while our distillate inventories have now slipped 0.6% below the distillate inventories of 162,478,000 barrels that we had on March 4th at the end of the warm winter of last year, they are still 28.7% higher than the distillate inventories of 125,503,000 barrels of March 6th, 2015…

finally, with our net oil imports higher and our refinery demand lower, we had an even larger surplus of crude oil remaining, and hence our inventories of crude oil rose for the 9th week in a row to yet another record, increasing by 8,209,000 barrels to 528,393,000 barrels by March 3rd...thus we ended the week with 10.3% more crude oil in storage than the 479,012,000 barrels we ended 2016 with, which we can see in the bar graph below..

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the above graph comes from an emailed package of graphs from John Kemp, senior energy analyst and columnist with Reuters (see my footnote below) and it shows in bar graph fashion the amount of oil added to US crude inventories between December 31st and the first weekend in March for each of the past 11 years...while surplus crude is normally added to storage during the winter months, when refineries are runnng slower, it's quite obvious that the surpluses have been much larger than average (shown by the red dash) over the past three years...what that has resulted in in terms of increasing supply is then shown in the next graph we'll include below...

the above graph comes from a weekly pdf booklet of petroleum graphs produced by Yardeni Research, a provider of independent investment and economics research, run by Dr Ed Yardeni...it shows the end of the week supply of crude oil in millions of barrels for each week beginning with January 2013, up to and including this week's report for March 3rd, with graphs for each year color coded as indicated...here we can see how our oil inventories stayed in a narrow range during 2013 and 2014 (and during the years before then, for that matter), represented by the mustard and green bands, typically falling to below 330 million barrels by the end of each summer and then rising to nearly 370 million barrels by early spring....however, at the beginning of 2015, represented by the blue colored graph, our inventories of oil started rising each week till they topped 450 million barrels at the end of April 2015, and then stayed elevated in a range 80 to 100 million barrels above the previous norms over the rest of that year...that continued into 2016, represented by the grape colored graph, and although the rate of increase tailed off from the previous year, our 2016 oil supplies still generally averaged about 15% above 2015's elevated levels, and more than 40% above historical levels...now we see in the scarlet colored graph, representing the first nine weeks of 2017, that our oil supplies are now again rising at an faster rate from the records set in 2016...as a result, we now have 7.7% more crude oil in storage than the then record 490,843,000 barrels we had stored on March 4th of 2016, 27.2% more crude than the 415,425,000 barrels of oil we had in storage on March 6th of 2015 and 56.2% more crude than the 338,333,000 barrels of oil we had in storage on March 7th of 2014...

This Week's Rig Count

US drilling activity increased for the 18th time in 19 weeks during the week ending March 10th, as we saw the 6th double digit rig increase in the past 8 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 12 rigs to 768 rigs in the week ending on this Friday, which was 288 more rigs than the 480 rigs that were deployed as of the March 11th report in 2016, but still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the count of rigs drilling for oil rose by 8 rigs to 617 rigs this week, which was up from the 386 oil directed rigs that were in use a year ago, but down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations rose by 5 rigs to 146 rigs this week, which was up from the 94 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...the rig that was classified as miscellaneous that has been running for several months was finally shut down this week, and thus there are now no such miscellaneous rigs at work...

two more drilling platforms were added to those working in the Gulf of Mexico this week, both offshore from Louisiana, which brought the Gulf of Mexico count up to 20 rigs, still down from the 26 rigs that were drilling in the Gulf during the same week of 2016...that also brought the total US offshore count for the week up to 20 rigs, all in the Gulf of Mexico, down from a total of 27 offshore rigs a year ago, when there was also a rig working offshore from California, in addition to the 26 rigs in the Gulf of Mexico...also this week, a rig was also set up to drill through an inland lake in Louisiana, where there are now 5 such inland lakes rigs active, up from the 3 that were drilling on inland waters a year ago...

the number of horizontal drilling rigs working in the US increased by 6 rigs to 639 rigs this week, which is now up by 264 horizontal rigs from the 375 horizontal rigs that were in use in the US on March 11th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a net total of 6 vertical rigs were added this week, bringing the vertical rig count up to 68, which was also up from the 55 vertical rigs that were deployed during the same week a year ago...meanwhile, the directional rig count was unchanged at 61 rigs, which was also up from the 50 directional rigs that were deployed during the same week last year....

as usual, the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of March 10th, the second column shows the change in the number of working rigs between last week's count (March 3rd) and this week's (March 10th) count, the third column shows last week's March 3rd active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 11th of March, 2016...

the first thing we have to note is that this week's increase came without an increase in drilling in Texas, who did not see an increase for the first time since September...the states with the largest increases this week included Louisiana, with the two new rigs in the Gulf, the one on an inland lake, and two in the Haynesville, and Colorado and Oklahoma, who each added three rigs...Oklahoma's increase does not appear to be of horizontal drilling outfits, since none of the shale basins in that state show a gain. whereas the 4 rig increase in the Denver-Julesburg Niobrara could account for the Colorado or the Wyoming increases....note that the Utica in Ohio added two rigs this week and now has 22 rigs active, double the 11 rigs that were active a year ago....also note that of the states not listed above, Mississippi also added a rig and now has 4 rigs active, up from 2 rigs a year ago, while Nevada saw its only rig, which had been working in the state since July, shut down...

International Rig Counts for February

Baker Hughes also released the international rig counts for February on Tuesday of this past week, which unlike the weekly North American count, is an average of the number of rigs that were running in each country during the month, rather than the total of those rig drilling at month end....Baker Hughes reported that an average of 2,027 rigs were drilling for oil and natural gas around the globe in February, which was up from the 1,918 rigs that were drilling around the globe in January, and up from the 1,761 rigs that were working globally in February of last year....increased North American drilling again accounted for most of the global increase, as the average US rig count rose from 683 rigs in January to 744 rigs in February, which was also up from the average of 532 rigs that were working in the US in February a year ago, while the average Canadian rig count rose from 302 rigs in January to 342 rigs in February, which was also up from the 211 Canadian rigs that were deployed in February a year earlier....outside of Northern America, the International rig count rose by 8 rigs to 941 rigs in February, which was still down from 1,018 rigs a year ago, as increases in drilling in Europe and Latin America more than offset small decreases in Asia and Africa..

the count of rigs deployed in the Middle East was unchanged at 382 rigs in February, after their drilling activity had increased by 6 rigs in January, which still left them down from 404 rigs a year earlier...OPEC member Kuwait, whose compliance with the cartel's agreed to cuts has been on par so far, activated 7 additional rigs in February, and thus had 59 rigs deployed, up from 43 rigs a year earlier...the Qataris, also an OPEC member, also added a rig in February and thus had 11 rigs working, up from the 6 that were drilling new wells a year ago...Bahrain, an island country in the Gulf who is not an OPEC member, also added a rig and now have 2 drilling, in contrast to a year ago, when they had no activity....on the other hand, the Saudis idled 4 of their rigs during the month, and now have 120 rigs active, which is down from the 128 rigs they had working a year ago..still, Saudi Arabia's rig count had averaged near 125 rigs weekly since early 2015, up from their average of around 105 rigs in 2014, so they've not yet pulled back to the level of drilling they were doing before OPEC started the price war...Egypt, who is not an OPEC member, shut down 2 of their rigs in February, leaving them 23 rigs still active, down from 35 rigs a year earlier...in addition, OPEC members Iraq and Abu Dhabi of the United Arab Emirates, and Israel each shut down 1 rig for the month...for Iraq, that left 40 rigs still active, down from 49 rigs a year earlier, for Abu Dhabi, that left 47 rigs down from 48 a year earlier, andthat left Israel with no drilling activity, down from 1 active rig a year ago..

meanwhile, the Latin American region saw their active drilling rig numbers increase by a net of 3 rigs to 179 rigs, down from 237 rigs in February of last year, and down from 321 rigs as recently as September of 2015, as the region idled 92 rigs over the first 6 months of 2016...OPEC member Venezuela added 3 rigs and thus had 54 rigs active for the month, which was down from the 69 rigs they had deployed a year earlier...in Argentina, where they had shut down 11 rigs in December and another 7 rigs in January, added two back in February and thus had 54 rigs working, down from 65 a year earlier and down from over the over 100 active rigs Argentina saw through most of 2015...Columbia, also not a cartel member, also added two rigs in February, bringing their active total up to 22 rigs, up from 7 rigs a year earlier....in addition, OPEC member Ecuador added 1 rig rig and thus had 7 rigs active, up from 4 rigs a year earlier...Latin American countries reducing their rig count included Brazil, who was down 2 rigs to 14 rigs, and down from 35 rigs a year ago, and Bolivia, Peru, Guyana, minor producers who each shut down 1 rig...

drilling activity in the Asia-Pacific region slipped by a net of 2 rigs to 196 rigs in February, which was still up from the 182 rigs working ove the region a year earlier...the Chinese shut down 2 more offshore rigs, after they had shut down 5 offshore rigs in January and 3 offshore rigs in December, leaving them with 18 rigs working offshore, down from the 25 offshore rigs they were running last February...India shut down 1 rig but still had 115 rigs active, up from 99 rigs a year earlier....and Vietnam also shut down 1 rig, leaving 3 rigs active, the same as they had a year ago...meanwhile, Thailand added one rig and thus had 13 rigs active, which was still down from 16 rigs a year earlier, and Bangladesh also started drilling with a single rig, in the first drilling in Bangladesh since the end of 2014...

on the other hand, drilling activity picked up in Europe, rising by 9 rigs to 107 rigs rigs, which was was the same number of rigs working in Europe a year ago at this time, as their offshore drilling activity rose from 31 rigs to 38 rigs, also up from the 36 rigs offshore of Europe a year ago...Noway added 4 platforms offshore to bring their total to 16 rigs, all offshore, down from 18 rigs offshore a year ago...the UK also added 3 offshore, increasing their offshore count to 11 rigs, up from 7 rigs offshore last February....Sakhalin Island, off the east coast of Russia but inexplicably included in the European totals, added 2 rigs offshore and 3 on land, bringing their total deployment to 12 rigs, up from 6 rigs a year ago...Romania added 2 land based rigs and shut down 1 offshore, and thus have 7 onshore rigs active, same as a year ago...in addition, Poland added 2 land based rigs and thus had 10 active, up from 7 rigs a year ago, and Greece started up a rig offshore, their first activity since last July...meanwhile, Turkey shut down 3 rigs, leaving them with 29 rigs still working, same as a year ago, Italy shut down one offshore platform, leaving 4 rigs on land still active, the Dutch shut down an offshore rig, leaving them with 2 offshore, and France, Hungary and Iceland each cut back from 2 rigs to one, as none of them ran more than 2 rigs over the recent year...

lastly, the African continent excluding Egypt saw a net decrease of 2 rigs to 77 rigs in February, which was also down from the 88 rigs working in Africa last year at this time...OPEC member Angola shut down 2 rigs, and now has 3 rigs active, also down from the 8 rigs they had active a year earlier..OPEC member Algeria shut down 1 rig, leaving 50 rigs still working in Algeria, down from the 52 rigs they had a year ago...Tunisia shut down 1 of the two rigs they had active, which is still more than a year ago when they had no rigs active...on the other hand, OPEC member Nigeria, who is exempt from the organization's production cuts for the time being, added 1 rig and now have 7 rigs working, which was still down from the 9 rigs they had deployed a year ago, and Senegal started up a single rig in their first drilling activity since May of last year...finally, note that Iranian, Russian, and Chinese rig counts are not included in this Baker Hughes international data, although we did note that China's offshore area, with an average of 18 rigs active in February, were included in the Asian totals here...

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as noted above, one of the graphs that i included above was from an emailed package of graphs from John Kemp, a senior energy analyst and columnist with Reuters...he advises that his mailing list is open to anyone, quoting him: "SIGN UP to receive a free daily digest of best in energy news + my research notes by emailing john.kemp@tr.com " i've been receiving a daily mailing of links & graphics, copies of his columns as published, and a weekly pdf of graphs... so if anyone is interested in receiving the same, just write to John Kemp as noted above...alternatively you can also follow him on twitter, @ https://twitter.com/JKempEnergy where he seems to post much of what he otherwise mails....

natural gas prices, meanwhile, were up every day this week after Monday, but still ended lower than their February 17th print and more than 28% below their post Christmas high....while there is typically little daily news to indicate the underlying reasons for natural gas price changes, Monday saw April natural gas prices fall to $2.693 per mmBTU, after last week's March contract expired at $2.787 per mmBTU...from there it climbed to $2.774 per mmBTU on Tuesday, to $2.799 per mmBTU on Wednesday, to $2.804 per mmBTU on Thursday, and finally to $2.827 per mmBTU on Friday, up 5 cents from last week, despite the fact that the weekly natural gas storage report showed a net increase of 7 billion cubic feet for the week ending February 24th, the first time surplus gas was ever added to storage in February...

of course, these daily quotes are for April natural gas at the Henry Hub in Louisiana, and actual natural gas selling prices vary widely across the country....at the time Henry Hub gas for March was selling for at $2.62/MMBtu on Wednesday, down 77 cents month over month, gas at the Algonquin city gates in Ontario was trading at $3.26/MMBtu, down $4.13 month on month, gas at the New England border was selling for $2.98/MMBtu, while three large terminals in the Appalachians saw gas below $2...that depressed price for Appalachian natural gas is a function of still inadequate pipeline capacity, which keeps natural gas prices for heating and electricity in our region lower than the rest of the country, while simultaneously slowing further increases in drilling and associated fracking...we can expect that advantage to end soon, given the pipelines that are now under construction, or soon to start....

the above graphic, taken from this week's Natural Gas Weekly Update, shows the expected completion time and the natural gas capacity for each of the liquefied natural gas (LNG) trains now under construction in the US...each of these trains are color coded as to which LNG plant they are part of, and the size of the bar represents the capacity in billions of cubic feet of gas per day that the train is expected to process when it's completed...briefly, each of these "trains" takes raw natural gas as it comes out of the delivery pipeline and removes all the impurities that are normally in the raw gas that can't be included in LNG because they freeze at different temperatures than methane, then lowers the temperature of the pure methane to approximately −260 °F, at which point the gas becomes liquid and thus takes up about 1/600th the volume of natural gas in the gaseous state...it is then stored in supercooled tank farms at the terminal until it is ready to be loaded onto ocean going tankers...(btw, if LNG should ever come in contact with even cold water, it will explode to 600 times its volume)

the sky blue bars above represent trains 4 and 5 of the Sabine Pass LNG facility at Sabine Pass, Louisiana, on the Gulf of Mexico at the Texas border, which now has three LNG trains already in operation...the "nameplate capacity" of each of the Sabine Pass trains is 0.7 billion cubic feet of gas per day, but the three existing trains are now processing 2.3 billion cubic feet of gas per day, so i assume these capacities aren't cast in stone...the 4th train of Sabine Pass is expected to be operational in the 3rd quarter of this year, and thus will shortly boost our national natural gas exports up to 3.0 cubic feet of gas per day...following that, train 1 of the export facility at Cove Point Maryland, indicated by the brown bar, is expected to add another 0.7 billion cubic feet of gas per day of liquefaction and export capacity in the 4th quarter of this year....Cove Point was originally an LNG import and storage terminal, so what were once distribution pipelines from that facility will now be the pipelines that will be delivering fracked gas from the Marcellus and Utica shales to that terminal for export..

the rest of the liquefaction and export capacity now under construction will not be complete until the second half of 2018 or later...Elba Island LNG, located in Georgia, is shown in grey and featured in this week's Natural Gas Weekly Update...Elba Island will be using a new technology that will consist of ten small-scale liquefaction trains, each with a capacity to liquefy approximately 33 million cubic feet per day (MMcf/d), with 6 to be completed in the 3rd quarter of next year, and 4 to be added at the beginning of 2018, for a total project export capacity of 0.35 billion cubic feet per day...at the same time, the first train of Cameron LNG Liquefaction Project in Hackberry, Louisiana, indicated in green, will add another 0.7 billion cubic feet of gas per day of liquefaction and export capacity in the 3rd quarter of next year, with additional 0.5 billion cubic feet of gas per day trains to be added at that facility in the 4th quarter of 2018 and the 3rd quarter of 2019...Cameron trains 4 and 5, currently on the drawing board, are not included in the above graphic of under construction facilities...

in the 4th quarter of 2018, the first train of the Freeport Liquefaction and Export Project, indicated by orange bars, will be completed, adding another 0.7 billion cubic feet of gas per day of liquefaction and export capacity, and they'll add similar sized trains in the 2nd quarter and 4th quarter of 2019...they already have 20 year contracts to sell the output of that LNG terminal to Toshiba, BP, Osaka Gas and Chubu Electric, which means they'll have a claim to US natural gas production before Americans will...lastly, the first two trains of the Corpus Christi Liquefaction facility, shown in a wine color, will be added in the 1st and second quarters of 2019...this was originally an LNG import and regasification terminal run by Cheniere Energy, the parent of the Sabine Pass facility, and is being refitted to liquefy and export LNG...when the plants represented by the graphic above are completed, the US is projected to have a 9.4 billion cubic feet per day liquefaction and export capacity, the third largest in the world, just behind that of Australia and Qatar...that would represent about 10% of our total natural gas production, assuming there no major changes in our own consumption over the next three years..

The Latest Oil Stats from the EIA

this week's oil data for the week ending February 24th from the US Energy Information Administration indicated that our imports of crude oil increased from the prior week's depressed levels, that our refinery activity also increased from last week's two year low but remained below normal, and that we again had a surplus of crude added to our stockpiles for the 8th week in a row, which were thus at another an all time high...our imports of crude oil rose by an average of 303,000 barrels per day to an average of 7,589,000 barrels per day during the week, while at the same time our exports of crude oil fell by 490,000 barrels per day to an average of 721,000 barrels per day, which meant that our effective imports netted out to 6,868,000 barrels per day for the week, 793,000 barrels per day more than last week...at the same time, our crude oil production rose by 31,000 barrels per day to an average of 9,032,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 15,900,000 barrels per day during the week...

meanwhile, refineries reportedly used 15,664,000 barrels of crude per day during the week, 393,000 barrels per day more than during the prior week, while at the same time, 214,000 barrels of oil per day were being added to oil storage facilities in the US...thus, this week's EIA oil figures seem to indicate that we used or stored 22,000 less barrels of oil per day than were accounted for by our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom -22,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents "unaccounted for crude oil"...that "unaccounted for crude oil" is further described in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil.", which means they got that balance sheet number by backing into it, using the same arithmetic we just illustrated.....

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports fell to an average of 8.185 million barrels per day, now just 5.1% higher than the same four-week period last year...meanwhile, the 4 week average of our oil exports was at 881,000 barrels per day, which is noted as 122.5% higher that a year earlier...that apparent big jump in our oil exports has led some in the media to suggest our oil exports are replacing those oil exports held off the global markets by OPEC...however, that's a percentage increase off a very small base, and our year to date oil exports which averaged have 763,000 barrels per day only represent 341,000 more barrels per day than last year's average of 421,000 barrels per day....at the same time, our oil imports have increased by 413,000 barrels per day from a year ago, from an average of 7,871,000 barrels per day during the first 8 weeks of 2016 to an average of 8,284,000 barrels per day this year....what appears to be happening is that we are exporting light sweet crude which we have an abundance of, and importing heavier sour crudes which our refineries are optimized to use...so while our oil exports may rise as we unload our surplus light oil, because we're importing even more oil to replace what we're exporting, our exports are not a threat to the OPEC cuts..

meanwhile, this week's 31,000 barrel per day oil production increase was facilitated by a 32,000 barrel per day increase in oil production in the lower 48 states, while at the same time oil output from Alaska fell by 1,000 barrels per day...our crude oil production of 9,032,000 barrels during the week ending February 24th was the most we've produced since mid-March of last year and was only a half percent lower than the 9,077,000 barrels of crude per day that we produced during the week ending February 26th of last year, while it remained 6.0% below our record for oil production of 9,610,000 barrels per day that we set during the week ending June 5th 2015 ..

US refineries were operating at 86.0% of their capacity in using those 15,664,000 barrels of crude per day, up from 84.3% of capacity the prior week, but down from the year high of 93.6% of capacity seven weeks earlier, when they were processing 17,107,000 barrels of crude per day....their processing of oil is also still down by 1.2% from the 15,852,000 barrels of crude that were being refined during the week ending February 26th, 2016, when refineries were operating at 88.3% of capacity....but even with the refinery pickup, gasoline production from our refineries was little changed, rising by just 27,000 barrels per day to 9,456,000 barrels per day during the week ending February 24th, which as it turns out was 1.3% more than the 9,335,000 barrels per day of gasoline that were being produced during the week ending February 26th a year ago, when gasoline output inexplicably slumped for a week...at the same time, refineries' production of distillate fuels (diesel fuel and heat oil) rose by 288,000 barrels per day to 4,755,000 barrels per day, which was still a bit less than the 4,801,000 barrels per day of distillates that were being produced during the week ending February 26th last year...

with the nominal increase in our gasoline production, the EIA reported that our gasoline inventories fell by 546,000 barrels to 255,889,000 barrels as of February 24th, as our domestic consumption of gasoline inched up by 23,000 barrels per day to a still below normal 8,686,000 barrels per day, while our gasoline exports rose by 43,000 barrels per day to 891,000 barrels per day and our gasoline imports rose by 90,000 barrels per day to 457,000 barrels per day...however, even with this week's inventory draw down, our gasoline supplies were at an all time high for the 3rd week in February, as they were up slightly from the 254,989,000 barrels of gasoline that we had stored on February 26th of last year, while they were 6.6% above the 240,060,000 barrels of gasoline we had stored on February 20th of 2015...

even with the large increase in our distillates production, our supplies of distillate fuels also fell, decreasing by 925,000 barrels to 165,133,000 barrels by February 24th, which was still much less of a drop than the 4,924,000 barrel drawdown of distillates last week...that was as the amount of distillates supplied to US markets, a proxy for our consumption, fell by 479,000 barrels per day to 3,813,000 barrels per day, and as our imports of distillates rose by 81,000 barrels per day to 210,000 barrels per day, while our exports of distillates rose by 277,000 barrels per day to 1,284,000 barrels per day....even so, our distillate inventories are still 0.4% higher than the distillate inventories of 160,715,000 barrels of February 26th during the warm winter of last year, and 33.5% above the distillate inventories of 122,976,000 barrels of February 27th, 2015…

finally, with the increase in our net oil imports significantly larger than the increase in refinery demand, we again had surplus crude remaining, and hence our inventories of crude oil rose for the 8th week in a row to yet another record, as they increased by 1,501,000 barrels to 520,184,000 barrels by February 24th...thus we ended the week with 8.6% more crude oil in storage than the 479,012,000 barrels we ended 2016 with, 6.9% more crude oil in storage than the then record 486,699,000 barrels we had stored on February 26th of 2016, 26.8% more crude than the 410,246,000 barrels of oil we had in storage on February 27th of 2015 and 56.5% more crude than the 332,453,000 barrels of oil we had in storage on February 28th of 2014...so you can all see what those record supplies look like, we'll include a picture of the interactive graph that accompanies the ending stocks of crude oil page at the EIA, which is much easier to understand than the complicated graphs on this that we've featured recently...

This Week's Rig Count

US drilling activity increased for the 17th time in 18 weeks during the week ending March 3rd, but just barely....Baker Hughes reported that the total count of active rotary rigs running in the US increased by just 2 rigs to 752 rigs in the week ending on this Friday, which was still 267 more rigs than the 489 rigs that were deployed as of the March 4th report in 2016, but far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

the count of rigs drilling for oil rose by 7 rigs to 609 rigs this week, which was up from the 392 oil directed rigs that were in use a year ago, but down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...meanwhile, the count of drilling rigs targeting natural gas formations fell by 5 rigs to 146 rigs this week, which was still up from the 97 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...there also remained a single rig that was classified as miscellaneous, which is marked as a 1 rig increase from a year ago, when there were no such miscellaneous rigs at work...

one more drilling platform was added to those working in the Gulf of Mexico this week, this time offshore from Texas, which brought the Gulf of Mexico count up to 18, still down from 24 during the same week of 2016...that also brought the total US offshore count for the week up to 18 rigs, all in the Gulf of Mexico, down from 24 offshore rigs a year ago, when they also were all in the Gulf of Mexico...

the number of horizontal drilling rigs working in the US increased by 9 rigs to 633 rigs this week, which is now up by 244 horizontal rigs from the 389 horizontal rigs that were in use in the US on March 4th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a net of 1 vertical rig was added this week, bringing the vertical rig count up to 62, which was also up from the 58 vertical rigs that were deployed during the same week a year ago...on the other hand, 8 directional rigs were taken out of service during the week, cutting the directional rig count back to 61, which was still up from the 42 directional rigs that were deployed during the same week last year....

as usual, the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of March 3rd, the second column shows the change in the number of working rigs between last week's count (February 24th) and this week's (March 3rd) count, the third column shows last week's February 24th active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 4th of March, 2016...

as you can see above, the rig count increases this week were in the oil basins that saw their largest expansion earlier in the decade and have been more or less ignored recently, as the Permian and the SCOOP / STACK in Oklahoma's Cana Woodford have been in ascendancy....the Eagle Ford of south Texas, which once hosted 259 rigs, added 5 this week to bring their total back up to 69 rigs, while the Williston basin of North Dakota, home of Bakken crude, which had 224 rigs at that time, added 3 rigs this week to get their count back up to 38 rigs...meanwhile, the three major gas basins, the Marcellus, the Utica, and the Haynesville, each saw one rig pulled out, while 2 gas rigs were also removed from unnamed "other basins"...since Pennsylvania saw a 2 rig decrease and the Ohio rig count remained unchanged at 19 rigs, it's apparent that the Utica shale rig which was shut down this week had been drilling in Pennsylvania..

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